ROGERS, AR – Americas CarMart Inc. (NASDAQ:CRMT), a prominent auto dealership group, has entered into a significant amendment to its existing loan agreement while also securing a new source of funding through a warehouse loan facility. This financial maneuvering aims to bolster the company's finance receivables and enhance its liquidity position.
On Monday, the company, alongside its subsidiaries, amended its Third Amended and Restated Loan and Security Agreement, initially dated September 30, 2019. The latest amendment, known as Amendment No. 7, allows Americas CarMart and certain of its subsidiaries to engage in an amortizing warehouse loan facility. This facility provides the company with additional funding avenues for its finance receivables, subject to certain conditions.
The warehouse loan facility, established with Atlas (NYSE:ATCO) Securitized Products Funding 1, L.P. and its servicing affiliate, involves a $150 million borrowing arrangement. It is collateralized by loans originated by Americas CarMart Inc. and Texas Car-Mart Inc., two of the company's operating subsidiaries. The terms of the facility include a maturity date of July 12, 2026, and an interest rate based on the adjusted Term SOFR plus a margin of 350 basis points.
The amendment also includes modifications to the fixed charge coverage ratio covenant, which is a key financial metric that lenders use to evaluate a company's ability to cover fixed charges such as interest and lease expenses.
It's noteworthy that the warehouse loan facility includes a recourse provision against the company for up to 10% of the aggregate borrowed amount. This means that Americas CarMart is liable for a portion of the debt should there be any defaults.
The relationship between Americas CarMart and the lending group extends beyond this transaction, with some lenders or their affiliates providing a variety of financial services to the company, for which they receive customary fees and expenses.
This strategic financial move by Americas CarMart demonstrates the company's proactive approach to managing its capital structure and ensuring it has the necessary resources to support its operations and growth initiatives.
In other recent news, Americas CarMart has reported mixed results for the fourth quarter of fiscal 2024. The auto dealership and gasoline station company experienced a 13.6% decrease in sales, but saw an improvement in gross margin by 200 basis points. This comes in the wake of rising auto insurance rates that have impacted consumers. The company has partnered with Cox Automotive to enhance its vehicle supply chain, and has implemented a Loan Origination System (LOS), aiming at reducing losses and improving deal structures.
In addition to operational updates, Americas CarMart also completed the acquisition of Texas Auto Center, a move expected to contribute to future revenue and net income growth. However, the company also reported an increase in net charge-offs to 7.3%, due to customer budget pressures leading to a higher default frequency. On a positive note, delinquencies improved to 3.1% and the allowance for credit losses improved by 42 basis points.
In terms of corporate governance, Americas CarMart has updated its Code of Conduct and Ethics. The revised code, approved by the Board of Directors, aims to reflect the evolution of the company's operations and the modern work environment. This move underscores the company's commitment to ethical conduct and corporate responsibility.
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